Equity Analysis /
Saudi Arabia

Qassim Cement Co.: Q1 19: Strong earnings due to higher selling prices

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

    SNB Capital
    9 May 2019
    Published by

    Qassim Cement reported better-than-expected Q1 19 results. Net income stood at SAR56mn (-2.0% yoy), coming higher than our estimate of SAR45mn. We believe this was a result of higher-than-expected selling prices, which stood at SAR199/ton versus our estimates and Q4 18 levels of SAR159/ton. We expect similar outperformances from the remaining players, especially those in the Central region.

    Qassim Cement reported better-than-expected Q1 19 results. Net income stood at SAR56mn, decreasing 2.0% yoy. This compares with NCBC and consensus estimates of SAR45mn and SAR53mn, respectively. We believe this was the result of higher-than-expected selling prices, which stood at SAR199/ton versus our estimates of SAR159/ton. 

    Sector read-across: We believe the qoq increase in prices was sector-wide and not just specific to Qassim Cement. Accordingly, we expect similar outperformances from the remaining players, especially from those in the Central region like Yamama Cement.

    Sales increased 3.7% yoy to SAR153mn, coming in higher than our estimates of SAR126mn. We also attribute this to higher selling prices, as quantity sold was in line with our estimates. Selling prices increased 24% yoy to SAR199/ton versus our estimates of SAR159/ton and SAR159/ton in Q4 18. We believe higher selling prices offset the 16.4% yoy decline in local cement quantities for Qassim Cement. In comparison, the cement industry’s local sales declined 9.4% yoy (+2.8% qoq) during Q1 19.

    Gross margins remained flat yoy at 42.3% in Q1 19. This is higher than our estimates of 39.6%. We believe the variance in gross margins is also primarily due to higher-than-expected selling prices.

    We are Neutral on Qassim Cement with a PT of SAR46.0. We believe the increase in selling prices for Qassim Cement, and potentially the remaining players, is positive. However, despite the increase in prices, we believe quantities sold will remain low during H1 19 and may put pressure on selling prices. We expect further clarity on the timeline of mega projects to be the key catalyst for an improvement in cement demand in Saudi Arabia.